Propagation is the next ‘big thing’ for custodians looking to optimise tax parcels to reduce funds’ tax liabilities. It’s a process, developed by DST Global Solutions, where in a multiportfolio fund all investment transactions recorded at the portfolio level (that is, the actual transactions of a fund manager) are also recorded at the fund level. The benefit is that all tax and accounting can be done at the fund level as opposed to what has traditionally been done at the portfolio level. This means the fund can use the most efficient tax parcel allocation, maximising the capital gains tax discount (called ‘tax free gains’) on domestic shares and maximising any tax deferral opportunities (dubbed the ‘time value of money’).
Custodians’ chance to master all trades
As a concept, master manager custody blazed a new trail for Australia’s institutional investors when it arrived from overseas. It‘s a progressive asset servicing model originated by Richard Ennis, co-founder of US consultancy EnnisKnupp, that aims to break down some of the silos through which investment programs are usually implemented.
Cut fees to keep the couch potatoes
There are very few benefits to having more than one superannuation fund, yet for around two in five Australians, this is the case. In fact, just under half of those members with multiple accounts are no longer contributing to at least one of their funds. In other words, hundreds of thousands of accounts are sitting there, dormant, while administration and investment management fees are deducted from them.
Investors move on affordable housing
The third round of applications in the National Rental Affordability Scheme closes on August 31, with the financial services industry finally taking a serious look at the project, two years after its launch. The scheme, which is jointly funded by the Commonwealth and State and Territory Governments, was launched in July 2008 with the promise of assisting construction of 50,000 new dwellings, or redevelopments, for low-income renters by 2012.
Winning funds when the good times end
Asset managers will need to run a fiduciary overlay to attract flows from the most prominent sources of new capital – sovereign wealth funds (SWFs), national pension funds, central bank reserve funds and defined contribution (DC) vehicles – finds Professor Amin Rajan of CREATE Research, in a global survey of asset managers overseeing US$29.1 trillion, entitled Exploiting uncertainty in investment markets. “The fund pie will be noted for its subdued growth,” Rajan writes, adding that the next three years will be particularly tough. “Dog fights will be inevitable.”
Funds unfurl umbrellas for members
Economic and social changes are encouraging – or forcing – super funds to become more like umbrellas for their members. Australians trust some super funds far more than their banks, and baby boomers want their employers to help them prepare for retirement by providing financial education. Super funds are rated highest for quality of advice, closely followed by financial advisers, according to Sweeney Research for the Industry Funds Forum and the Australian Institute of Superannuation Trustees (AIST), while banks come in at a poor ninth and the general media last in 12th place.
CalPERS’ open search for new way of asset allocation
A CalPERS investment committee workshop in May, which reviewed its capital market assumptions, marked a turning point in the big Californian fund’s approach to asset allocation. The fund has embarked on a year-long asset allocation review that is more like a total engine rebuild, and arguably one of the most important activities the fund’s investment staff, in conjunction with its board, have undertaken. Not only is the fund reviewing its allocations, but also the very assumptions that drive investments, with the potential outcome not just a tweaking of allocation bands but an entirely new way of investing in assets. In addition, it’s being done in a fully transparent and open dialogue with the board and the public.
The perils of chasing top performers
Choosing any partner, whether personal or business, can be fraught with complexity, and the process of hiring and firing managers does not escape these selection perils. While most sophisticated investors pay more attention to investment process than performance, the latter still acts at least as a filter for most shortlists. A recent paper by funds manager Enhanced Investment Technologies (INTECH), Chasing performance is a dangerous game, explores how insidious chasing performance can be.
Aussie institutions catch up on ETFs
This magazine doesn’t normally find itself defining things, the assumption being that we have a sophisticated audience which has at least a passing familiarity with most investment concepts. However, exchangetraded funds (ETFs) seem to be so far off the radar of the average chief investment officer, a little explanation can’t hurt (with a nod to Russell consultants Nick Curtin and Raewyn Williams, whose April 2010 paper ‘ETFs: An Australian perspective on a global phenomenon’ is a comprehensive review of the ETF ecosystem).
What makes a great investor?
Look beyond the numbers. Investing is about people: the ability to gather good information, analyse assets and create investment strategies all depends on people. And some people are better than others. Very few, however, are so wildly talented that their stories define success in the industry. “My list of iconic investors reaches 10,” says Hugh Dougherty, head of manager research with Towers Watson in Australia. “They have some kind of Midas touch. They’re out there. They’re freaks.” The dismal science produces a Happy Economist
Behavioural aspects to investing are much more widely discussed in professional circles these days than just a few years ago thanks to the growing number of economists and writers who study the less rational actions of market participation. Human biases impact on investment decisions and they are no longer considered soft issues by market researchers. Herding and market bubbles, for instance, and their link with funds manager momentum strategies exist because of consistently irrational behaviour. Alpha is not everything (but it comes close)
Even Cliff Asness believes in it. The boss of quantitative hedge fund AQR Capital Management, who studied under Eugene Fama at the University of Chicago, says he is still “respectfully scared” of the legend of efficient markets thinking when he asserts that alpha exists. “It does. But it’s rarer than people seem to think.” 
